Quezon Power Mauban’s Rate is now 51% to 82% higher than the other coal plants. Should the DOE and ERC not investigate?

David Celestra Tan, MSK
17 October 2020

This year 2020, Meralco likes to boast that its generation rate had come down from P4.9039 per kwh in January to P4.12 per kwh in August, a 16% reduction. They like to point out that they negotiated hard with its IPP’s by declaring force majeure during this pandemic so the take or pay provisions of the contract were not applied, thus saving us consumers P1.5 billion.  They want us to be thankful for the 16% reduction and for their good deed of saving us some money. And we are.

Your organizations’ crack analysts however noticed that the fuel of these plants which is coal, had come down by 28% from $69.66 in January to $50.34 in August. Additionally, the WESM price dropped 193% from P8.49 per kwh in January to only P2.421 per kwh in August.

So why did Meralco’s generation rate dropped only 16%?

Our analysts noticed that in Meralco’s generation mix is sticking out like a sore thumb, the Quezon Power Mauban’s average rate for the period January to September 2020 of P6.73 per kwh. It is 51% higher than AC Energy at P4.55, 66% higher than San Miguels Sual at P4.051, an astonishing 82% higher than Therma Power in Pagbilao at P3.6549 per kwh.  QPL is 66% higher than the new 460mw San Buenaventura coal plant at P4.0533 per kwh.

What’s going on?

There is a lot that needs to be explained in the Quezon Power charges that are passed on to the consumers. In January its rate was P6.5919 per kwh. Inexplicably it went up higher instead of lower to P6.723 per kwh despite coal prices coming down by 28% during that period. This is anomalous and needs a DOE and ERC investigation to protect the public interest.

QPPL’s P6.5919 per kwh that January was a  stark contrast to all the other coal power suppliers of Meralco. Masinloc was P5.4658 per kwh, Luzon Therma of Aboitiz in Pagbilao at P3.9001 per kwh, San Miguel Sual at P4.0689 and AC Energy at P4.2366 per kwh. That’s an average premium of 52.4%!  And that is not to mention the P28 per kwh rate that Meralco paid QPPL last March and passed on to the consumers! 

In terms of absolute numbers, for the first 9 months of 2020 Meralco bought 1.601 Billion kwh of electricity from QPPL at an average price of P6.73 per kwh.

The average price of all other coal power suppliers to Meralco for that period is about P4.20 per kwh. In fact, the Pagbilao plant of Aboitiz sold only at an average P3.68 per kwh and San Miguel Sual at P4.05 per kwh for the period.

This means Meralco paid Quezon Power P2.53 per kwh higher (6.73 – 4.20) than the average or at a total cost of P4.05 Billion premium to its partner QPPL so far this year 2020. That P4.05 Billion had been passed on to the Meralco consumers.

Is the ERC not looking into the details, where the devil is normally.

Also by contrast, our analysis of Meralco generation purchases for the previous year 2019 showed that Quezon Power’s rates were higher as it had always been since its start in 2000, but it was only 9 to 12% higher than other coal plants.  What mystery happened in 2020?  Does the fact that the owners of QPPL is now a partner of Meralco in the other Mauban coal plant have something to do with it?

A Background on Quezon Power Private Ltd. (QPPL)

Quezon Power has been perennially the most expensive coal power in the country since the beginning. The 440mw plant was built at a cost of $810 million in late 1990’s and owned by Bechtel’s Intergen (68%), operator Ogden Power (30%), and local project promoter PMR 2%. It started commercial operations in May of 2000 with a 25 year Power Supply Agreement to expire in 2025.

In 2014 Intergen and Ogden Power sold out to EGCO a unit of EGAT of Thailand. In 2015, EGCO bought the remaining 2% of PMR at a published price of $15.027 million thus still valuing the company at $751.35 million. The valuation was based on the net present value of its projected cash flow for the 10 years remaining in its PSA with Meralco. The investment paid back well for EGAT since in addition to the sweetheart rate of the PSA it parlayed it into a partnership with Meralco PowerGen and access to the Meralco power demand of 6,000mw, 70% of the country’s total energy demand.

The evidently juicy rates of QPL have been punishing Meralco consumers for the last 20 years.  Its original project financing of 75% must have been fully recovered a long time ago at least since 2013. Their original equity of 25% (approximately $202.5 Million) was sold for the equivalent of $751 million on top of what they earned in the first 15 years of its operations.

The EGCO and Meralco Partnership

In 2013 EGCO proposed to Meralco a 480mw expansion of the Mauban coal complex. Reportedly at a rate of P3.80 per kwh. At that time the CSP rules were not yet in place. After the negotiation, the rate became P4.30 per kwh and the project became owned 51% by Meralco PowerGen. The ERC approved it at P4.25 per kwh for the project which is then named San Buenaventura Power. Coal was then at a low $50 per ton.

The project was promoted by Meralco to have an advanced coal technology called super critical high efficiency and low emissions or Super HELE. In addition to its lower emissions, it is supposed to be more efficient. Translated it should use less fuel and hence have a lower cost.

The 500mw Super critical plant broke ground in 2015 and was completed by EPC contractor Daelim of Korea in May 2019. It started delivering power to Meralco In June 2019, charging for the first few months what appears to be “test energy”, normally fuel and variable costs. The full rate started in November 2019 with P3.9699 per kwh and P3.9132 per kwh in December.

Quezon Power’s rate for 2020 average of P6.7335 is 66% higher than San Buenventura Power (SBPL) rate at P4.0533 per kwh. SBPL’s rate, with its more advantaged technology, is still higher than the P3.6849 per kwh of the much older coal plant in Pagbilao by 10%.

Of all these coal plants, the comparable ones are the 440mw QPPL plant in Mauban and the 460mw Masinloc plant. They were built at about the same time. Yet, Masinloc has been consistently beating Mauban in rates by 10 to 20% over the years.

Talking about competitive power supply, whatever happened to supplies from the SEM Calaca Coal plant and from the Masinloc coal plants? They are no longer on Meralco’s list of suppliers.

A Need for Investigation to Protect the Public Interest

There is a lot in the Quezon Power’s very expensive rate that needs to be investigated. Its pricing mechanism and indexing. Its coal procurement. Why does its price pattern not mimicking the price trend of coal which cost is a pass on charge? If coal goes down, the generation rate should come down if not immediately, at least in the following months.

An investigation is even more compelling now that Meralco and the owners of Quezon Power are partners in the San Buenaventura power plant. Given what we observe that Meralco eventually owns part of the recipients of power supply contracts it awards, it should not be surprising if Meralco also now owns part of QPPL. Remember, the Power Source solar project in Bulacan? It is now majority owned by Meralco. That’s the negotiating power of the DU that controls the market.

If Meralco is true to the terms of its Franchise to protect the public interest, to supply power in the least cost manner, to not engage in anti-competitive behavior and monopoly, it would not be willing to pay that kind of premium to one of its power suppliers.

Of course, they don’t care because it is passed on to the consumers…and they benefit from the overpricing because they control ownership.

When will we consumers get a fair shake? Let us start by hoping that someone in government will look into protecting us from these very disturbing overcharges.

Matuwid na Singil sa Kuryente Consumer Alliance Inc.
matuwid.org
david.mskorg@yahoo.com.ph